Get App
India’s organised jewellery retailers are expected to outperform the overall jewellery industry in FY2024, supported by new store openings by a majority of large jewellery retailers and market share gains due to accelerated formalisation of the industry, according to rating agency ICRA.
The rating agency expects its sample set of 12 major organised jewellers to register a revenue growth of about 12-15% YoY in FY2024, despite a high base and evolving macro-economic environment, compared to an expected industry growth of 8-10% YoY. In terms of profitability, operating margin of ICRA’s sample set is expected to remain in comfort and stabilise at around 7.5-8% over the next two years. With the debt protection metrics and liquidity position of retailers in the sample set expected to remain comfortable, supported by higher earnings on the back of improved scale of operations.
“Most jewellery retailers in ICRA’s sample are estimated to have recorded revenue growth in excess of 15% YoY on Akshaya Tritiya 2023,” said Kaushik Das, Vice President and Co-Group Head, ICRA. Das added that the aggressive retail expansion by most players during FY2023 along with a steep increase in gold prices ( about 10-12% higher YoY in April 2023) are likely to have aided revenue growth, while volume growth remained muted in the light of the high base, evolving domestic inflation and volatility in gold prices.
The rating agency further said that the volume growth is likely to remain constrained due to expected volatility in gold prices amidst global macro-economic uncertainties and evolving domestic inflation. However, the strong cultural affinity of Indians to gold is expected to support festive and wedding demand for gold jewellery.
ICRA estimates the operating margins of organised players to witness some moderation in FY2024 owing to higher operating costs for new stores and increasing competition. Nonetheless, the benefits of economies of scale and likelihood of inventory gains for some jewellers in FY2024 are likely to push the operating margins in the range of 7.5-8% in the coming years which is higher than the average levels of 6.5% recorded before the pandemic.
According to ICRA, the debt levels are likely to increase due to funding of inventory for new stores, but the debt protection metrics for the larger players are expected to remain comfortable. This is because the estimated interest coverage is over five times and the total outside liabilities to tangible net worth ratio is less than 1.5 times over the next 12-18 months as against 5.6 times and 1.4 times, respectively, estimated in FY2023.
“After a brief hiatus in FY2021 and FY2022 due to the pandemic-induced uncertainties, the organised jewellers accelerated their retail expansion in FY2023 with the store count of ICRA’s sample set estimated to have risen by more than 20% during the year,” Das said.
ICRA noted that the momentum is likely to continue in FY2024 with an estimated increase in store count by 18-20% YoY. Subsequently, the inventory turnover ratio for the industry is likely to remain under some pressure over the next couple of years as new stores have an average breakeven period of 12-18 months.